Apple readies cheaper iPhone for growth markets

Cheaper phone risks cannibalizing Apple's premium iPhone model but Apple needs to expand its emerging market share.

TAIPEI: Apple Inc. will release a cheaper iPhone 4 within weeks, jeopardizing profit margins to win lower-end customers from rivals such as Nokia in China and other emerging markets.

Asian suppliers have begun making a lower-cost version of the hot-selling smartphone with a smaller 8-gigabyte flash drive that will arrive around the same time Apple unveils its much-anticipated iPhone 5, two sources with knowledge of the matter told Reuters.

The world's most valuable technology company has long stuck to the higher end of a booming mobile device arena, but is now seeking out new markets to sustain the rip-roaring pace of growth that has enthralled Wall Street.

It is in talks with leading Chinese carriers China Mobile Ltd and China Telecom Corp Ltd, both of which are eager to carry the device that defined the smartphone market when Apple launched it in 2007.

"A lower-priced version of iPhone 4 seems to be a necessary evil at this point in the iPhone adoption cycle, especially in emerging markets where the average income of individuals is much lower," said Channing Smith, co-manager of the Capital Advisors Growth Fund, which owns Apple shares.

Pat Becker, portfolio manager at Becker Capital Management, said Apple is looking to take a chunk of the market that is currently dominated by Finnish rival Nokia Oyj, which is widely expected to release a new phone running on Microsoft Corp's Windows software as early as end of the year.

Nokia dominates the lower end, while Apple has so far focused only on the premium market.

"Your best defense is sometimes your offense," he said.

A cheaper phone risks cannibalizing Apple's premium iPhone model and pressuring margins, but the California company needs one to expand its emerging market share, analysts say.

The flash drive for the 8-GB iPhone 4 is being manufactured by a South Korean company, one of the sources said on Tuesday, declining to name the company. Apple currently sources its flash drives from Japan's Toshiba Corp and South Korea's Samsung Electronics Co Ltd.

Apple, which demands high levels of secrecy and security from suppliers and employees, would not comment. Samsung also declined comment.